No sooner will Americans stash their hobgoblin masks and plastic pumpkins in the back of their closets than thoughts will turn to the year-end holidays. Will the lights be brighter than usual or will a hangover from three major hurricanes, plus stratospheric gasoline and heating costs, leave consumers in a funk?
The question is especially pertinent for the job market, because this is the season when retailers and other businesses step up hiring. If buyers don’t darken the doors at discount and department stores, those seeking work may be left in the cold.
That brings us to Friday’s October employment report. Chicago economist Robert Dederick is looking for payrolls to show growth of 150,000 positions, reversing a drop of 35,000 a month earlier.
“Aside from the storms, the economy has been shrugging off all bad news, and it appears to be clipping ahead,” said Dederick, of RGD Economics.
A big drop in consumer confidence, however, indicates that Americans were shaken by recent events, he said. The economy may not be out of the woods.
“While the secondary effects of the hurricanes and high fuel prices have yet to be felt, we will need to watch carefully what happens over the next two months,” Dederick said. “Questions about holiday spending patterns will be in the forefront. Overall, however, we still are seeing an economy that wants to grow.”
Call it a no-brainer that Tuesday’s meeting of the Federal Reserve Open Market Committee will culminate with an announcement that short-term interest rates are going higher, to a flat 4 percent. That will mark a quadrupling of the central bank’s key overnight lending rate in about 16 months.
While most economists believe that soon-to-be-departed chairman Alan Greenspan is following a proper course, squeezing out any hint of price pressures, others aren’t so sure.
“The prospects for both slower growth and moderating inflation indicate the Fed should pause in its march to push up interest rates,” said professor Peter Morici of the Robert H. Smith School of Business University of Maryland.
“If it fails to heed the warning signs beneath today’s generally good news, the Fed risks throwing the economy into a tailspin.”
As matters stand, Morici sees scant evidence that the central bank will cool its jets before the short-term rate hits 4.5 percent.
The dawn of Halloween brings sighs of relief in the stock market, as Wall Street bids farewell to what has historically been the year’s spookiest month. With prices dead in the water for months, investment bulls are licking their chops about the probability of a yearend rally.
Last year, the final two months saw equities soar by nearly 10 percent, their only major move for 2004. Because profits currently are running at double-digit rates ahead of a year ago, Wall Street’s optimists are primed for a rerun.
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(c) 2005, Chicago Tribune.
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AP-NY-10-28-05 1755EDT
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